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Saturday, August 29, 2015

The Market: A Retreating Bear And A Surging Bull

After reviewing this week in the markets, one will not find it hard to write about the volatility and waves of sentiment that defined the past five trading days. The Dow Jones Industrial Average ranged from 15,446 to 16,650, a 1,204 point difference over a trading period of about 40 hours. That's about 30 points an hour without counting retracements. It's fair to say now that the worst is over as corrections ease back over the 7-day short-term trend line, inching closer to the 30-day moving average. Volatility will begin to rescind into the oblivion of the recent past as investor keep their eyes on the Chinese recession as well as the Federal Reserves musings on rate hikes.While U.S. stocks were getting beat up in every sector, the crude oil price posted surprising results with the global market surge that immediately followed the crash. A chart from WSJ shows the phenomenon best:

It took 3 trading weeks to drop the WTI benchmark price to its low, and only 5 days to record a subsequent full retracement. Light, sweet oil prices ranged from $37.75 to $45.90, a difference of $8.15. These gains were sustained over a week of disparaging economic data from China that turned into tumbling stock prices and the disintegration of billions of dollars in equity. Comparing WTI's performance this week with its past is this diagram:

Just as discussed before, oil markets retraced almost half of the losses accumulated over 3 months in a matter of days. That's really all there is to it. Technicals are pointless to discuss in a market saturated with emotion and wide ranges of sentiment. Investors now need to decide when the extension of gains will end and prepare to trade accordingly. Charts and graphs should be eradicated of the past five days as the major declines and inclines are almost pointless in the grand scheme of things. The outlook appears to be the same for global markets, a slight bullish tilt after a correction that sold stocks to a lower price. Crude oil will probably be looking at more losses in the next couple months as the gains on emotion will be replaced by the realities of fundamentals. The same goes for XOI and XNG which both saw significant gains this week as part of the energy sector. Demand data will also be in question as Asian markets continue their spurts of volatility. Keep one eye on the Shanghai Composite before coming to conclusions on crude market data. Possibilities of supply cuts loom in the background with OPEC's member states calling for action. Even though I suggested that OPEC does not hold the power of price manipulation, they can still cause price movements by affecting trader sentiment. For now, though, crude oil's jumps will be supported by high volumetric data where the last two days of increases saw 500,000 and 635,000 buys as new long positions are created in the revived market. As the volatile week closes out, and traders begin their analysis of a refreshed market, we'll be looking ahead for further stability from a market swing that deflated prices to their realistic values. Confidence in the system has not faltered like it had in the 1930's and 2009, but there must always be global credence to the possibility of a recession which would doom us all to our globalized fate.